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Analyst: U.S. Tire Market Needs 4 New Tire Plants by 2021

Mitchell, senior vice president of research for Northcoast Research Holdings LLC, says a series of conversations with representatives from the full spectrum of the tire industry resulted in each person saying HVA tires would continue to drive the tire market, and that the demand would require new tire plants.

“The biggest takeaway from the discussions was the fact that each individual predicted that the HVA product cycle will continue to have a significant impact on industry fundamentals over the next five years and require meaningful investments in capacity.”

For these discussions, Mitchell relied on a HVA tire definition that both Goodyear Tire & Rubber Co. and Bridgestone Corp. have agreed upon: tires that are 17 inches and larger. These tires typically have the combination of HVA characteristics, such as aspect ratio, sophistication of the tread compound, complexity of the tread pattern, rolling resistance, speed rating, etc.

“The increasing mix shift, combined with a modestly expanding end market, will continue to have a profound effect on the number of HVA light vehicle tires shipped across the industry in the U.S.,” Mitchell says.

“In fact we estimate that annual shipments of HVA passenger and light truck tires (defined by rim size) in the U.S. will increase by 54.2 million by the end of 2021.”

More tires means the need for more capacity. Mitchell says it will drive the need for incremental capacity of 19.1 million tires — thus four new tire plants in the next five years to serve the U.S. market alone.

“In our opinion, this means that the market fundamentals in the U.S. alone will absorb a good portion of the estimated 45 to 60 million units of light vehicle tire production capacity that is expected to come online in North America by the end of 2021.”

Mitchell says, “The ongoing mix shift also creates a windfall to profitability trends. We estimate that mix trends in the U.S. alone over the next five years will drive $1.205 billion of incremental annual operating income for the manufacturers that supply the U.S. market.

“This tailwind includes an estimated $1.644 billion benefit from higher shipments of 17-inch or ogreater tires, partially offset by a projected $438 million headwind from a decline in shipments of tires less than 17 inches.

“Based on our calculations, this dynamic should increase average operating income per light vehicle tire shipped by $4.”